TAKEOVERS

DEFINITION OF TAKEOVERS

• Assumption of control of another (usually smaller) firm through purchase of 51 percent or more of its voting shares or stock.

• General term referring to transfer of control of a firm from one group of shareholders to another group of shareholders.

• MEANING OF TAKEOVER:- “Takeover” is a transaction whereby a person acquires control over the company either: directly by becoming the owner of the Company; or in directly by obtaining control of the management of the company.

• “Take Over” – taking over the control of management “Substantial acquisition of shares or voting Rights”- acquiring substantial quantity of shares or voting rights

Why should company takeover

• To gain opportunities of market growth more quickly

than through internal means.• To seek to gain a more dominant position in a

national or global market.• To acquire the skills or strengths of another firm to

complement the existing business.• To diversify its product or service range to protect

itself against downturns in its core markets.

TYPES OF TAKEOVER

• Friendly takeover

• Hostile takeover

• Reverse takeover

• Backflip takeover

FRIENDLY TAKEOVER

• Before a bidder makes an offer for another company, it usually first informs the company's board of directors. If the board feels that accepting the offer serves shareholders better than rejecting it, it recommends the offer be accepted by the shareholders.

• In a private company, because the shareholders and the board are usually the same people or closely connected with one another, private acquisitions are usually friendly. If the shareholders agree to sell the company, then the board is usually of the same mind or sufficiently under the orders of the equity shareholders to cooperate with the bidder.

• Friendly takeover: Management of a company may face serious financial problems or threats of hostile takeover Unable to ward off the takeover attempt. A friendly corporate body or group of companies may come to the rescue by buying shares of the company in the open market and/or by pumping resources to help the management.

HOSTILE TAKEOVER• A hostile takeover allows a suitor to take over a target

company whose management is unwilling to agree to a merger or takeover. A takeover is considered "hostile" if the target company's board rejects the offer, but the bidder continues to pursue it, or the bidder makes the offer directly after having announced its firm intention to make an offer.

• The method of trying to take the control of the company without the knowledge of the existing management is known as “hostile takeover”. .

REVERSE TAKEOVER• A REVERSE TAKEOVER is a type of takeover where a

private company acquires a public company.

• This is usually done at the instigation of the larger, private company, the purpose being for the private company to effectively float itself while avoiding some of the expense and time involved in a conventional IPO.

However, under AIM rules, a reverse take-over is an acquisition or acquisitions in a twelve month period which for an AIM company would:-

• exceed 100% in any of the class tests; or• result in a fundamental change in its business, board or voting

controL.

BACKFLIP TAKEOVER

• A backflip takeover is any sort of takeover in which the acquiring company turns itself into a subsidiary of the purchased company.

• This type of takeover rarely occurs

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